FIN 385 WEEK 7
Course Project Fixed-Income Security
Objectives | Guidelines | Milestones | Grading Rubrics | Best Practices
Objectives
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Students should familiarize themselves with bonds and/or preferred stock as an investment opportunity and as a source of funds. In this assignment, students will determine why a fixed-income security may be offered by a firm, what features it must have in order to be attractive to investors, and what kind of financial results were achieved as a result. Balance sheet accounts as well as certain ratios are to be analyzed.
Guidelines
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• Papers should be 10 to 20 pages in length, 10-point font, and double-spaced; and should include a cover page, table of contents, introduction, body of the report, summary or conclusion, and works cited.
• Even though this is not a scientific-type writing assignment and is mostly creative in nature, references are still very important. At least six authoritative, outside references are required (anonymous authors or web pages are not acceptable). These should be listed on the last page titled "Works Cited."
• Appropriate citations are required.
• All DeVry University policies are in effect including the plagiarism policy.
• Any questions about this paper may be discussed in the weekly Q & A discussion topic.
• This paper is worth 170 total points and will be graded on quality of research topic and paper information, use of citations, grammar, and sentence structure. See the grading rubric; this is also available in Doc Sharing.
Students should pick a company that has issued bonds in the last three years so that the Internet can provide sufficient financial data for analysis.
Post in the Journal (a) your company choice, (b) the security offered, and (c) when that security was issued. It- suggested that you work on at least one of each of the remaining sections each week.
The final report is made up of separate sections for each milestone listed below. Each section should be approximately one page (excluding charts, graphs, etc.).
Important: When preparing your report, separate the sections with headings that are the same as the highlighted milestones below.
Milestones
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I. Company Background (15 points)
This section should include what industry the firm is in, its products, its competitors, and the stated main reason for needing capital (to fund receivables, capacity expansion, retire older debt, etc.).
II. Balance Sheets (20 points)
What did the balance sheet looked like in the quarter just prior to issuing the bonds? Include both a copy from before the issue and after the issue. Calculate at least five of the ratios shown in the Moody- Bond Rating Chart contained in the Week 2 Lecture both before and after the bonds were issued, and discuss why you think they are important to your report.
III. Trends in YTM and Price (20 points)
At what price and YTM was the initial offering sold? Tabulate the price and YTM of the issue at the end of each calendar quarter for the last six quarters. Then, plot the tabulated values to visualize the trends in YTM and prices.
IV. Purpose of the Offering and Leverage (20 points)
What was the planned use of the funds raised? If you can’t find a specific discussion about that, then use your judgment as to why you think the funds were needed and explain your reasoning. Calculate the financial leverage before and after the offering.
V. Credit Rating (20 points)
What credit rating have the bonds been given by the bond credit rating services? Research the criteria each agency uses to determine the rating. Why (or why not) do you think that recent financial statements justify the rating?
VI. Rate of Return (30 points)
If you were one of the original investors in this issue and you had invested $10,000, what would your total return be if you sold the securities at today- market price? Compute the duration of the bond and its convexity currently. Add a brief discussion about your calculations.
VII. Comparisons (30 points)
Identify and compare pre-offering EPS and total equity $ to the most current values. Compute the firm's current WACC assuming the total debt of the firm is in the issue that you analyzed. This means that if the company has more than one debt issue outstanding with a total face value of $X million and your chosen issue involves $Y million, then assume that all $X million is in your issue. This will simplify the calculations without diminishing learning value. Discuss at least three overall conclusions about this offering as a result of your research.
VIII. Comments (15 points)
Please give your opinion about the value of this project to your overall learning experience in this course. Constructive comments, both positive and negative, are appreciated. Discuss at least two characteristics about this project. Please edit your report so that it is something that makes you proud.
Grading Rubrics
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Fixed-Income Security Project Rubric
Part Points Full Credit 3/4 Credit 1/2 Credit 1/4 Credit
1 15 Thorough description with all requirements All elements included, but lacks some depth
Clear reason for funding Some elements included, but lacks depth.
Unclear reason for funding Minimal description
Most elements missing
No reason for funding
II 20 Pre and post balance sheets
Pre and post D/E and ROE ratios Balance sheets included
3/4 ratios shown Balance sheet included
Only 1/2 the ratios shown Missing one or more balance sheet(s)
No ROE shown
III 20 Trends in YTM and price All included, except 18-month trend incomplete Partial trends included No indication of the trends
IV 20 Found and commented on purpose of the offering
Computed financial leverage before and after offering Found purpose of offering and leverage, but incomplete Purpose or leverage missing Some information provided without explanation
V 20 Found credit rating on the security from two agencies; listed criteria needed for that rating Only one agency rating found
Criteria shown Only one agency found, but no criteria shown No credit ratings found
VI 30 Computed total return, duration, and convexity, and discussed All calculations shown, interest or dividends shown, but TVM improperly applied Calculations shown and TVM applied improperly TVM not used to calculate total return
No calculations
shown
VII 30 Compared EPS, total equity pre-offering to most current
Computed WACC and discussed your thoughts about them Three conclusions reached, but with weak justifications
EPS and ROE determined Conclusions shown but without justification
Calculations incomplete No conclusions or calculations shown
VIII 15 Opinion on value of project to course
Two or more constructive comments Opinion with weak justification
One constructive comment Opinion without justification
One constructive comment No opinions
One constructive comment
Total Points = 170
Best Practices
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The following are the best practices in preparing this paper.
• Plan ahead using the suggested milestones.
• Do research early so if any problems occur you have time to fix them.
• If you get stuck at any point, pose questions to your instructor and/or your classmates.
• Cover page: Include who the paper was prepared for, who prepared it, and the date.
• Table of contents: List the main ideas and sections of you paper and the pages on which they are located. The illustrations should be included separately.
• Introduction: Use a header on your paper; this will indicate that you are introducing your paper.
The purpose of an introduction or opening is to:
o introduce the subject and why the subject is important;
o preview the main ideas and the order in which they will be covered; and
o establish a tone of the document.
Include in the introduction a reason for the audience to read the paper. Also, include an overview of what you are going to cover in your paper and the importance of the material. (This should include or introduce the questions you are asked to answer on each assignment.)
• Body of your report: Use a header titled with the name of your project (e.g., “The Development of Hotel X - A World Class Resortâ€Â). Then proceed to break out the main ideas. State the main ideas, the major points in each idea, and provide evidence. Break out each main idea you will use in the body of your paper. Show some type of division; you can separate sections that are labeled, separate group of paragraphs, or separate headers. You will include the information you found during your research and investigation.
• Summary and conclusion: Summarizing is similar to paraphrasing, but presents the gist of the material in fewer words than the original. An effective summary identifies the main ideas and major support points from the body of your report; minor details are left out. Summarize the benefits of the ideas and how they affect the tourism industry.
• Work cited: Use the citation format as specified in the Syllabus.
Additional hints on preparing the best possible project:
• Apply a three-step process of writing: plan, write, and complete.
• Prepare an outline of your research paper before you go forward.
• Complete a first draft and then go back to edit, evaluate, and make any required changes.
• Use visual communication to further clarify and support the written part of your report (e.g., graphs, diagrams, photographs, flowcharts, maps, drawings, animation, video clips, pictograms, tables, or Gantt charts).
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